EXAMINATION OF POLICY AND REGULATION RELATING TO VOICE OVER INTERNET PROTOCOL (VOIP) SERVICES

Transcription

1 EXAMINATION OF POLICY AND REGULATION RELATING TO VOICE OVER INTERNET PROTOCOL (VOIP) SERVICES REPORT TO THE MINISTER FOR COMMUNICATIONS, INFORMATION TECHNOLOGY AND THE ARTS PREPARED BY THE DEPARTMENT OF COMMUNICATIONS, INFORMATION TECHNOLOGY AND THE ARTS November 2005

2 CONTENTS EXECUTIVE SUMMARY... 4 Findings... 4 Recommendations INTRODUCTION Context and process Scope of the review Key principles VOIP AND CIRCUIT-SWITCHED VOICE SERVICES KEY FEATURES What is VOIP? VOIP service types VOIP supply scenarios VOIP service options Location independence Quality of service VOIP UNDER THE CURRENT POLICY AND REGULATORY FRAMEWORK Are VOIP services carriage services? Are VOIP services standard telephone services? Overseas policy and regulatory approaches to VOIP Views expressed in consultations and submissions Does the current policy and regulatory framework impose unreasonable barriers to entry on VOIP? Effect on competition Extraterritorial supply and enforcement issues THE FUTURE POLICY AND REGULATORY APPROACH TO VOIP Transition short-term and long-term perspectives Short-term strategy Numbering issues Customer Service Guarantee (CSG) Quality of service Emergency services Consumer information and disclosure Other issues Long-term strategy Competition issues Security issues Jurisdiction issues Other international issues NEXT STEPS Implementation Compliance with emergency service access requirements Numbering Customer Service Guarantee

3 Quality of service Integrated Public Number Database (IPND) Consumer information and disclosure Competition Application of subordinate regulation, industry codes and standards Further work APPENDIX 1: DISCUSSION OF KEY ISSUES FINDINGS, RECOMMENDATIONS Retail price regulation and untimed local calls Dual Tone Multi-Frequency (DTMF) Numbering Plan compliance Interception Privacy Calling line identification Integrated Public Number Database Number portability Preselection Access for people with disabilities Access to the National Relay Service Membership of the Telecommunications Industry Ombudsman Scheme Location dependent services Technical regulation ACIF codes and standards Telephone sex services Voice spam Operator and directory services Monitoring and reporting APPENDIX 2: ACRONYMS AND GLOSSARY List of acronyms Glossary

4 EXECUTIVE SUMMARY This report has been prepared by the Department of Communications, Information Technology and the Arts (the Department) in consultation with the Australian Competition and Consumer Commission (ACCC) and the Australian Communications Authority (ACA). The ACA will merge with the Australian Broadcasting Authority (ABA) on 1 July 2005, establishing the Australian Communications and Media Authority (ACMA). In this report, recommendations for actions to be taken in the future refer to the Authority in its future form as ACMA. Following is a summary of findings and recommendations. Findings F1: A fundamental shift is occurring as telecommunications providers begin the transition to next generation networks (NGNs). As providers upgrade their core networks to Internet Protocol (IP), and as broadband access technologies become increasingly available and widely adopted, a range of voice, data and multimedia services will be enabled over a single broadband connection. Voice over Internet Protocol (VOIP) is one of the first manifestations of this shift. At the same time there is a movement from fixed to mobile access for both voice and data and increasing convergence and competition between fixed and mobile services. F2: While take-up of VOIP is strong in the corporate market in Australia, consumer take-up of VOIP is still in the early stages and it is unlikely to become a major mass-market technology in the next two to three years. However, consumer VOIP services are already available and at this stage, the regulatory approach does not appear to be unduly impeding these services or stifling innovation. F3: VOIP services that can make calls to, and receive calls from, other interconnected telephone networks, will generally fall within the regulatory definition of the standard telephone service. VOIP expands the range of services that fall within this definition, raising questions about what is a standard service and whether all such services should be regulated to the same degree. In the short term, these issues appear to be manageable with some regulatory fine-tuning within the current framework and appropriate consumer awareness strategies. No changes to primary legislation have been identified as necessary. F4: One of the key changes to voice services brought about by IP technology is that services are no longer confined to fixed locations. Rather, services are inherently nomadic. This means they can be picked up and taken with the user to other locations and plugged in and used anywhere there is broadband access. This is an attractive feature of the technology and is likely to develop further with NGNs. However, nomadicity creates regulatory and policy challenges in a number of areas, particularly in relation to numbering and the reliability of information in the location database used by emergency service organisations. F5: Consumers associate geographic numbers with expectations about the quality, features and pricing of their voice service. Through the Integrated Public Number Database (IPND), geographic numbers also convey location information to 4

5 emergency service organisations. Geographic numbers are therefore likely to remain important for the next few years at least and any approach to numbering of VOIP services should not deliberately accelerate any erosion of the integrity of geographic numbers. F6: Consumers associate geographic numbers with a location and mobile numbers with a person. The nomadicity feature of IP services has the potential to blur the boundaries between fixed and mobile services. There is an inherent tension between the desirability of personalised numbering associated with VOIP services and the well-established value of geographic numbers. The future evolution of numbering is a longer-term issue that needs to be considered in the NGN context. In the meantime a new number range to accommodate nomadic services would have value. F7: Industry charging on the basis of the number dialled is established and appears to be well understood by end users; where services are diverted to other answering points or services, callers understand they will pay for the number dialled. This expectation should translate to VOIP services, whether or not a service is being used nomadically. F8: Nomadicity affects emergency call services by making location information in the IPND potentially unreliable. This issue, not unique to VOIP services, is manageable in the short term through a combination of targeted regulatory measures and consumer awareness strategies. Internationally, efforts are being made to develop longer-term technical solutions to the location information issue as it is a concern to many governments. F9: No immediate VOIP-specific competition issues have been identified. The introduction of the technology is expected to have a mild positive effect on competition as application service providers and Internet service providers (ISP) begin offering voice services in competition with the incumbent telecommunications providers. However, some potential issues have been identified: the capacity of integrated operators to position themselves to control VOIP via their control of broadband access the capacity of carriers to hold back the quality of rival services and applications employed over their networks other potential new sources of bottleneck power emerging (although it is too early to know what all of these will be). F10: The framework to protect public safety and assist with law enforcement and national security remains very important. This includes obligations and measures relating to emergency call services, access, interception, privacy and the protection of security and critical infrastructure. VOIP poses some challenges in these areas but, with the exception of emergency call services, these will be addressed in separate processes already underway. 5

6 F11: VOIP technology and capabilities are different from those of the circuit-switched telephone service and consumers differ in their ability to understand and use emerging voice services. To assist consumers to make informed choices there is a need for strategies to close the information gap between those who understand VOIP or will quickly come to do so and those who are less technologically aware. As with mobile services, change will come as people become more familiar with the technology. F12: It is important that the benefits of new technologies such as VOIP be made available as broadly as possible, including to those people with special needs such as the speech and hearing impaired. There do not appear to be any significant impediments to making and receiving calls to and from the National Relay Service (NRS) from a VOIP service. Like other users, people with disabilities can expect additional choices and will need more information about the quality and compatibility of different service and equipment offerings. F13: Quality of service for VOIP can be highly variable, but this does not mean that VOIP is necessarily a lower standard service. Calls made over the public Internet are subject to variable performance due to competition for Internet resources. Over managed networks the provider has end-to-end control of the services and can deliver good quality. In practice, quality of service is not likely to be a major issue as new providers will be competing with established voice services. Those offering a quality of service that is significantly lower than traditional telephony services are likely to find it difficult to compete in the market. In the short-term, quality of service issues can be addressed by providing information to enable consumers to compare services, and in the medium-term by industry self-regulatory processes consistent with international developments. F14: A key feature of emerging Internet-based services such as VOIP is that users can load an application or purchase a service that is separate from the underlying carriage service. This provides greater scope for services to be supplied from offshore, giving rise to concerns about the ability to enforce Australian law and its asymmetric application to domestically-based providers. This is a long-term issue which will be difficult to resolve without international cooperation. Recommendations R1: As VOIP is one of the first manifestations of a more fundamental transition toward NGNs, a staged approach should be adopted to manage this process. This will require: a. a short-term, two to three-year strategy to finetune arrangements within the existing policy and regulatory framework to accommodate VOIP b. continuing examination of the longer-term issues identified through this process pending a more comprehensive review of both the interim arrangements for VOIP and broader NGN issues. R2: The short-term strategy should deal with the immediate issues raised by VOIP. The key elements of the strategy should be: a. ensuring that the fully-featured service under the Universal Service Obligation (USO) remains available to all on request 6

7 b. providing some regulatory flexibility in relation to VOIP within certain parameters (notably the application of the Customer Service Guarantee (CSG) and quality of service requirements) to facilitate market development. This would include the option of a separate number range (see separate recommendations below). R3: The longer-term strategy and work plan to deal with the broader transition to NGNs, including continuing VOIP issues, should be implemented by the Department in consultation with ACMA, the ACCC and relevant industry and consumer bodies. The work plan should include examination of the following: Numbering a. jurisdiction and extraterritoriality issues (that is, the enforcement of Australian laws on service providers located offshore) b. interoperability and standards c. emerging competition issues d. potential critical infrastructure vulnerabilities and other security issues e. changes in consumer expectations, perceptions and behaviour that may make some legacy regulation redundant f. new technologies such as next generation messaging that provide opportunities to extend the services available to people with disabilities g. potential international and domestic Internet governance issues including numbering and addressing and voice spam that flow over into the NGN environment h. quality of service. R4: A new number range should be made available for use by VOIP service providers. This range should accommodate services that depart from the expectations of a traditional telephone service, for example, because they are intended for itinerant use, are PC-based or otherwise differ significantly from the services on other number ranges. R5: Geographic numbers should continue to be made available to telecommunications carriers and other providers of services that are a close substitute for a traditional telephone service. R6: In seeking number allocations, and choosing the appropriate range, prospective VOIP service providers should have regard for ACMA guidance concerning the nature and characteristics of services for which the numbers will be used (Table 2 provides guidance on the types of services for which the different number ranges may be used, and the services for which geographic numbers are not considered appropriate). All services would be required to comply with service requirements in the Telecommunications Numbering Plan

8 Nomadicity R7: Because all VOIP services are capable of being moved, location information provided automatically to emergency service organisations may be inaccurate. VOIP services should be flagged in the IPND so that the emergency service operator will know they will need to ask the caller for location information. ACMA should give priority to consulting with law enforcement agencies, emergency service organisations and industry generally on how the end user and service provider can manage and update flags and other information in the IPND. R8: Industry should be encouraged to find a technical solution to the issue of location information reliability in IP services. ACMA should work with domestic providers and vendors to ensure that any global solution can be implemented in Australia. R9: Location dependent services need information about the location of the customer in order to route the call to the destination closest to the customer (for example services using 13, 1300 and 1800 numbers). In general, if a VOIP service is being used at a fixed location, the expectation is that calls to these numbers will reach the correct destination. Service providers should disclose to consumers any limitations in the operation of these services, for example where the service is being used nomadically. Competition R10: Continued monitoring will be needed to identify new competitive bottlenecks and new forms of anti-competitive conduct. The ACCC should to be asked to monitor and report on VOIP competition issues in its annual competition reports. R11: Number portability should apply to services within the geographic number range and the new number range but not between them. R12: The current preselection arrangements, which include provision for exemptions, should continue to apply. Consumer issues R13: ACMA should conduct consumer and industry awareness activities about the differences between VOIP and circuit switched telephone services, and the ways in which customers can influence the performance of their VOIP service. R14: VOIP service providers should be required to disclose to customers the characteristics of the VOIP service and the differences between any VOIP service they purchase and traditional, circuit-switched telephone services. This would include: any differences in the application of the CSG variations in quality of service that can be expected reliance on mains powering the number range (geographic or 05) which will apply to the service 8

9 security vulnerabilities (such as viruses and hacking) the need to verbally provide location information to emergency services the operation of location dependent services when the service is being used nomadically whether the VOIP service allows a telephone touchtone keypad to be used for services such as telephone banking. R15: Quality of service indicators should be developed by ACMA to enable consumers to meaningfully compare services and to facilitate subsequent monitoring by ACMA. This should be done pending the development of an industry quality of service code that could be applied to services that are close substitutes for a traditional telephone service. Such indicators could make reasonable provision for VOIP s specific operational characteristics. Quality of service in terms of both voice quality and service reliability is a longer-term NGN issue for consideration by industry bodies such as ACIF. In the transitional period when new service types are being offered, ACMA should increase its oversight of the quality of service offered to customers. R16: The CSG should apply in full to VOIP only where the service is: a. supplied in fulfilment of the USO or b. the primary service provided to the premises and the VOIP service provider is also the carriage service provider. R17: To the extent that VOIP service providers are carriage service providers supplying a standard telephone service, they should continue to be required to be members of the Telecommunications Industry Ombudsman (TIO) scheme. R18: VOIP services should continue to be subject to relevant content regulation, including that currently applying to telephone sex services. R19: To the extent that VOIP service providers are carriage service providers supplying a standard telephone service, they are required to comply with other existing obligations such as the provision of operator services and directory services, unless exempted via existing processes. People with disabilities R20: Access to new services should continue to be governed in accordance with the provisions of the Disability Discrimination Act R21: In the longer term, consideration needs to be given to new technologies such as next generation messaging that provide opportunities to extend the services available to people with disabilities. 9

10 Public safety, law enforcement and national security R22: Two-way VOIP services that connect to the public telephone network must provide free 000 and 106 emergency call access and reliable calling line identification (CLI). R23: Dial-out only VOIP services must provide free 000 and 106 emergency access. R24: Critical infrastructure vulnerabilities arising from the increasing deployment of VOIP need to be examined. A review by the IT Security Expert Advisory Group of the security threats that could arise from VOIP is due to report by mid Jurisdiction and extraterritoriality R25: The resolution of jurisdiction issues is a long-term challenge that requires further work and cooperation in international fora. Dealing with extreme cases of regulatory non-compliance by offshore providers will require further examination, but potential sanctions include refusal of resources such as numbers, consumer warnings, blacklisting and do not deal rules. Application of subordinate regulation, industry codes and standards R26: ACMA should review and amend relevant subordinate regulation to ensure it is applicable to VOIP, including the timeframes and requirements in the CSG standard and the requirements for the labelling of equipment in customers premises. R27: ACIF should be requested to review and amend as necessary the codes, guidelines, standards and specifications that currently apply to standard telephone services to ensure they apply appropriately to VOIP services and are technology neutral as far as possible. R28: ACMA should examine the implications of VOIP for the operation of technical regulation generally. R29: New and non-traditional providers of networks and services should be encouraged to participate in industry self-regulation processes and in ACIF s work on NGN issues. Review R30: The ongoing development of VOIP services should be monitored. As clearer indications emerge of how these services are likely to develop, consideration should be given to conducting a more comprehensive review encompassing both the operation of the interim arrangements for VOIP and the broader issues posed by NGNs. 10

11 1. INTRODUCTION This report documents the findings and recommendations of a study by the Department, in conjunction with the ACA and the ACCC into the appropriate policy and regulatory framework for emerging VOIP services. The document presents a framework approach that takes account of extensive consultation between all three agencies. It is not exhaustive in matters of detail and a number of specific issues will require ACMA and the ACCC to undertake further work and consultations within their own areas of responsibility. A detailed discussion of specific issues is contained in Section 4 and Appendix 1. Context and process In 2004 there was growing industry and community interest in the mass market provision of voice communications services using VOIP technology. Adoption is being driven by the corporate market, with IDC reporting a 98 per cent increase in corporate VOIP services between 2003 and This trend is expected to continue. Frost and Sullivan estimate that IP telephony will make up 69 per cent of the large business and corporate sector by At this stage, small-to-medium enterprise and consumer uptake remains low, but there is increasing interest in VOIP from these sectors as broadband access improves and consumers become more confident with the technology. In August 2004 the Minister for Communications, Information Technology and the Arts asked the Department to give priority to examining the policy and regulatory issues arising from the deployment of VOIP, particularly potential barriers to market entry and innovation. The Coalition, in its 2004 election policy, Information Technology: Connecting an Innovative Australia, undertook, if re-elected, to review and, if necessary, legislate to remove barriers to entry for next generation services such as VOIP. 2 In addition, in October 2004 the industry regulator, the ACA, released a discussion paper on how VOIP fits within the existing regulatory framework as well as on some of the more immediate regulatory issues associated with the provision of VOIP services on which the industry had sought clarity. 3 The paper made a call for public submissions closing 31 December The Department and the ACCC also released discussion papers in late 2004 inviting comments via the ACA s process or to the agencies directly. 4 To complement the public consultation process, joint consultative workshops were held in Brisbane, Melbourne, Perth and Sydney in early December Paul Budde Communication, Australia NGN VoIP Stats, Overview, Analyses, The Coalition, Information Technology: Connecting an Innovative Australia, 2004, p Australian Communications Authority, Regulatory issues associated with provision of voice services using Internet Protocol in Australia: Discussion paper, October Department of Communications, Information Technology and the Arts, Discussion paper: Policy and regulatory issues for emerging voice services, November data/assets/pdf_file/16852/dcita_joint_voip_workshop_paper_041129_final.pdfaustralian Consumer and Competition Commission, VoIP services Competition implications, November pdf 11

12 In total, 49 submissions were received and examined by the three agencies. The Department, the ACA and the ACCC have worked closely in examining the issues raised by VOIP. Scope of the review The report focuses on issues relating to voice telephony and does not extend to wider Internet or NGN issues. Given the rapid pace of development and the need to accommodate innovation, the report seeks to be sufficiently comprehensive to provide timely guidance to industry and the community. That said, some conclusions can only be tentative at this time. The review did not examine: issues concerning the costing, funding and scope of the USO, which were reviewed in April issues addressed by the ACCC review of price control arrangements applying to Telstra, which was publicly released on 30 March Similarly, the Attorney-General s Department has responsibility for privacy and interception issues. While there are specific privacy obligations in the Telecommunications Act 1997, privacy policy is primarily a matter dealt with in the Attorney-General s portfolio. The Office of the Federal Privacy Commission provided a report to the Attorney- General on 31 March 2005 on its review of the private sector provisions of the Privacy Act 1988 which may have implications for the consideration of VOIP privacy issues. The work of the Attorney-General s Department will be supported by the Department and ACMA, but the issues are not covered in any detail in this report. Key principles In undertaking the review, the Department s starting point, consistent with the general objects of the telecommunications regime set out in section 3 of the Telecommunications Act and broad Government policy, has been: promoting competition and service innovation as a means of delivering benefits to the community protecting consumer interests in such areas as pricing, fault handling, quality of service, privacy and complaint handling protecting the public interest in such areas as emergency service access, law enforcement and national security ensuring the framework remains as technologically neutral as practicable promoting the practicable use of industry self-regulation. 5 Department of Communications, Information Technology and the Arts, Universal Service Obligation (USO) and Customer Service Guarantee (CSG) Review, June obligation_uso_and_customer_service_guarantee_review_csg 6 Australian Competition and Consumer Commission, 2004 Review of Telstra Price Control Arrangements, 30 March

13 In addition to these general principles, in conducting the review, the Department has also had regard to the following regulatory principles: maximising regulatory certainty and predictability for consumers and industry through the transition to NGNs minimising regulatory disruption avoiding, as far as possible, regulatory tilt that might artificially encourage or discourage the take up of particular service types and options ensuring there is sufficient flexibility to deal with future and unforeseen developments. 13

14 2. VOIP AND CIRCUIT-SWITCHED VOICE SERVICES KEY FEATURES The traditional telephone service everyone is familiar with has been around for more than 100 years. While many aspects of it have changed, its basic operation has largely remained the same. It is an analogue service in which the sound waves of speech are converted into electrical waves by the microphone in the telephone s mouthpiece for transmission and reconverted into sound waves by the speaker in the receiving telephone s earpiece. These analogue calls are passed over dedicated electrical circuits established between the caller and the called party. That is, it is a circuit-switched service. With the increasing digitalisation of communications, analogue transmission of voice calls in the trunk telephone network has gradually been replaced by digital transmission. This involves the analogue signal being electronically sampled and converted into data (in a similar way to the encoding of music on a CD) for transmission. Digital transmission supports efficiency gains in transmission and more sophisticated call processing. Further advances in technology, the increasing take-up of broadband connections and commercial forces are now seeing digital transmission of voice calls extended to users premises. What is VOIP? Voice over Internet Protocol technology encodes voice communications into IP packets for transmission. The term VOIP might best be used to denote this basic technology. Generally, however, VOIP is used as a catch-all for a range of voice services, often quite different. VOIP services require a broadband connection which could be provided over different broadband infrastructures (e.g. DSL, HFC, WiFi, and optical fibre). VOIP service types As a basic method of providing voice communications, VOIP can be used in many ways. It can be used to provide telephony services. It can also be integrated into other services to provide a voice communications capability, but not necessarily telephony as it is generally understood. For example, VOIP can be integrated with online advertising to enable customers to click to talk to a sales consultant. Such hybrid services are considered in this report, but the main focus is on telephony services. In terms of connectivity, there are four possibilities: 1. Peer-to-peer services isolated from the public telephone network and allows users only to make and receive calls on-net. 2. Dial-out only services which allow the user to make outgoing calls, including to public telephone numbers, but not to receive calls. 3. Dial-in only services, which support only incoming calls from public numbers these do not feature in the current discussion but would appear to be an option for premium rate services and for services with 13, 1300 and 1800 numbers. 14

15 4. Services providing any-to-any connectivity that is the ability to make or to receive a call to or from any other telephone. Figure 1 Figure 2 Source: DCITA Source: DCITA VOIP supply scenarios The supply of VOIP services requires basic infrastructure, a carriage service and a voice application. Different kinds of service providers may offer services with different levels of integration between each element. For example: Peer-to-peer VOIP services for on-net calls (not connected to the public telephone network) are typically provided by an online provider, requiring the user to have a separately sourced broadband connection. VOIP over broadband services provide interconnection with other types of voice services. These are typically provided by an online provider with the user having a 15

16 separately sourced broadband connection. Vertically integrated VOIP services that offer interconnection with other types of voice services bundled with both a broadband connection and ISP service. Corporate or enterprise VOIP services generally provide the highest voice quality of service of all the VOIP service types, with interconnection to other types of voice services. Regulation of telephone services does not impinge significantly on peer-to-peer services or corporate networks. Consequently, with a few exceptions, this review focuses in most detail on the other supply scenarios in which consumers have access to services with public numbers. VOIP service options The diversity of services available to the public is illustrated below in Table 1, which shows that voice services may be delivered as: traditional telephone connection close substitute with a telephone handset independent of a personal computer service that is based on a personal or laptop computer. Variations are also possible where cable or wireless broadband connections are used, or where dual mode handsets are available. It is also likely that all services will be capable of being provided as a softphone to be loaded on to a laptop or another programmable device or as a telephone look-alike plugged into or incorporating a specific VOIP adapter. These options could be deployed to different market sectors or at different times. In Table 1, the traditional telephony model gives users the least influence over the way the service is configured. More flexible service options give users more influence over the way the service is configured and used. Table 1 is confined to services with access to the public telephone network. In sections 1 and 2 of the table, a voice service with an independent handset is likely to be associated with a location much like a traditional fixed telephone service, whereas the services in sections 3 and 4 are likely to be associated with a person more like a mobile telephone service. However, with VOIP the distinction between fixed and mobile services becomes less distinct than it has been in the past. 16

17 Table 1. VOIP service options Service character Availability of service Selling point 1. USO service or stand alone voice service Always on Quality Example 1: Service provided in fulfilment of the USO Static and always on Quality service Example 2: Stand alone voice service to the premises Static and always on Quality service 2. Stand alone telephone Normally available Quality Example 3: Bundled supply of handset, software, voice service and Internet connectivity using a managed network Example 4: Bundled supply of handset, software, voice service and Internet connectivity using the public Internet Example 5: Bundled supply of handset or modem and voice service independent of a personal computer Normally available, subject to user setup Normally available, subject to user setup Normally available, subject to user setup Marketed as quality service with lower cost Marketed as quality service with lower cost Marketed as quality service with lower cost 3. PC-based service Example 6: Bundled supply of software and voice service for use with a personal computer, with or without handset Example 7: User purchases software, voice service and connectivity as separate elements for use with personal computer, with or without handset 4. Itinerant service Example 8: User purchases voice service for itinerant use, with or without handset, e.g. for WiFi use. (Dual mode mobile handset may also be used under separate mobile carrier licence) Depends on user setup Availability depends on user setup and dynamic choices Availability depends on user setup and dynamic choices Depends on network access and user setup Intermittent availability Economy Marketed as cheap calling option Marketed as cheap calling option Mobility Marketed as versatile and location independent The descriptive information in the table is based on current market conditions. It illustrates the diversity of VOIP services that can interconnect with the public telephone network. It is not a hierarchy and it does not represent a formal classification system. In some cases, users may change the way they use a service, for example moving between a desktop location and a laptop computer. Location independence One of the main differentiating features of VOIP is that users can access their service at different locations. This capability, known as nomadicity, allows an itinerant user to make and receive calls wherever there is access to a broadband connection. On the other hand, it calls into question the reliability of location information associated with numbers in the IPND. Location-based number allocations are also important because of consumer expectations about charging. Users are already familiar with similar issues in the mobile context, with its separate number range. 17

18 Quality of service Quality of service for VOIP can be highly variable, but this does not mean that VOIP is necessarily or in the medium-term to be regarded as a lower standard service. To a large extent it depends on the degree of control the service provider has over the call from origination to termination. Calls made over the public Internet are subject to variable performance due to competition for Internet resources. Over managed networks the provider has end-to-end control of the services and should be capable of delivering good quality. At a practical level, users of a VOIP service share responsibility for the overall quality of their service. It will be affected not only by the standard of service provided by the underlying broadband connection and the voice service provider, but also by the quality of the user s installation and the actions of the user who may, for example, be running other applications at the same time as a voice call. 18

19 3. VOIP UNDER THE CURRENT POLICY AND REGULATORY FRAMEWORK Voice services generally are subject to the telecommunications regulatory regime set out in the Telecommunications Act, the Telecommunications (Consumer Protection and Service Standards) Act 1999 and Parts XIB and XIC of the Trade Practices Act They are also subject to many subordinate regulatory instruments and self-regulatory industry codes, standards and guidelines. The key to classifying VOIP services under the current framework, and therefore determining the regulatory obligations that apply to them, are the concepts of: carriage service, and carriage service provider in the Telecommunications Act standard telephone service in the Telecommunications (Consumer Protection and Service Standards) Act. Under the Australian regime, where VOIP services fall within these definitions, they are subject to the relevant regulatory requirements unless exempted. Are VOIP services carriage services? While there is some scope for debate about particular cases, it appears that in most instances VOIP services interconnecting with the broader telecommunications network are carriage services. (That is, they are electro-magnetic services for carrying communications between points, where carry or carriage includes transmitting, switching and receiving). Given that VOIP services will generally be services carrying communications between points over one or more network units owned by one or more carriers and supplied to the public, the providers of these services will be carriage service providers. Where VOIP services and providers fall within these definitions they are subject to the obligations that apply, including compliance with the Numbering Plan, number portability requirements and requirements relating to law enforcement, national security and privacy. In the less regulated area of peer-to-peer VOIP services, users may be responsible for assembling different elements of their service. For example, they could obtain software for a voice service and combine it with broadband carriage capacity provided by another party. As a further complication, the user may obtain software and an Internet voice service from an overseas supplier. While this is likely to have limited impact in the area of public telephone services, it does add complexity to the application of broader carriage service provider obligations, particularly where there are questions of international jurisdiction. Are VOIP services standard telephone services? Under the current framework if a voice service is a carriage service for the purpose of voice and provides any-to-any connectivity (that is, it can make calls to, and receive calls from, other telephones connected to other interconnected telephone networks), then it is considered to be a standard telephone service. Most VOIP services connected to the public network meet this definition of a standard telephone service and, therefore, attract a wide range of regulatory obligations, including emergency service access, preselection, provision of CLI, provision of access to the NRS, the CSG and membership of the TIO scheme. 19

20 Some VOIP services are unlikely to meet the definition. For example, peer-to-peer VOIP services do not pass the any-to-any connectivity test if they are purely Internet-based: a one-way connection to the public telephone network (dial-in or dial-out) provides only limited connectivity. Some services are not offered solely or primarily for the purpose of voice for example, hybrid services where the voice component is ancillary to an online game. Despite these ambiguities, where these new services interconnect with the broader telecommunications network, they will most likely be considered carriage services and be subject to carriage service regulation. ACMA, however, can exempt providers from certain carriage service obligations where such obligations would not be consistent with the objectives of the telecommunications legislative framework. Overseas policy and regulatory approaches to VOIP The policy and regulatory framework for VOIP has been examined by many jurisdictions around the world, including Canada, the European Union, Hong Kong, Japan, Korea, the United Kingdom, and the United States. For regulatory purposes, most countries, apart from the United States, are treating VOIP services (generally with the exception of peer-topeer services) like other voice services. Most have a tiered approach to regulating voice services, which appears to recognise the need for a legislated guarantee of access to a telephone service of a high quality. Beyond this, there seems to be acceptance that other voice services may be less regulated. The United States is generally not treating VOIP services in the same way as traditional telephone services, instead treating them as computer-based information services that are relatively unregulated. However, arrangements for legal interception, emergency service access, disability access and USO contributions remain in contention. Views expressed in consultations and submissions A total of 49 submissions were received in response to the ACA, the ACCC and the Department s call for submissions. They fall into three broad categories with some arguing for: the status quo whereby all VOIP services should preferably meet all standard telephone service (STS) requirements, though conceding that some variation may be inevitable (some incumbents and consumer groups particularly) a light touch regulatory approach whereby VOIP should be free of most, if not all, regulation some qualify this, wanting a light touch until the technology matures (especially US-based VOIP service providers and companies, some industry associations and some Australian-based VOIP service providers); a two-tier regulatory approach whereby there is a standard service subject to full regulation, as well as provision for less regulated services with VOIP service providers choosing which type of service to offer (some incumbents and Australian and overseasbased VOIP service providers). 20

21 A number of respondents stressed the importance of aligning Australia s regime with overseas countries such as the United Kingdom on the one hand, or United States on the other. A sizable number of submissions were received from emergency service organisations (police, fire and ambulance). Most emergency service organisations want VOIP services to provide full 000 functionality, including the provision of accurate CLI and location information. Most also stress the importance of voice quality in emergency situations and want voice services to be highly reliable. Does the current policy and regulatory framework impose unreasonable barriers to entry on VOIP? Carriage service regulation includes compliance with the Numbering Plan, number portability requirements, a requirement for the provision of information to the IPND and requirements relating to legal interception, cooperation with law enforcement agencies and privacy. These obligations are generally important both to the consumer and to the national interest. As such, they represent the minimum set of obligations that should apply to all providers of voice services. It is arguable that the current standard telephone service definition is too broad covering an increasingly diverse range of services creating definitional difficulties around what is a standard service and is used to do too many things in the current legislation. This issue is not unique to VOIP services. The risk with such a broad definition is that by capturing a wide range of services and subjecting them to the same level of regulation, choice and innovation could be restricted. In fact, however, new VOIP services are being offered in the marketplace. The cost of entry to the market for VOIP service providers is relatively low. Application providers and ISPs are offering VOIP as an add-on to broadband access, and consumers benefit from the low cost of equipment. In the mobile market, data and video have been added to cellular services without changes to the regulation of mobile voice services. In summary, it appears that the current regulatory framework does not present an unreasonable barrier to VOIP services entering the market. In general, carriage service regulation is appropriate for all voice services, including VOIP services. While standard telephone service regulation is wide-ranging and in some cases specific to the public switched telephone network (PSTN), its application to VOIP appears to be manageable in the short term with some regulatory fine-tuning. ACMA has considerable discretionary powers under the current framework to exempt services on an individual or class basis from specific obligations attaching to the standard telephone service. For greater clarity, the framework for the application of obligations and exemptions can be set out in regulatory instruments. These and other regulatory issues are discussed in sections 4 and 5. In the longer term, it may be appropriate to review the standard telephone service definition in light of the increasing range of services entering the market. 21

22 Effect on competition VOIP services have introduced new opportunities for competition on the basis of price and functionality. With relatively low levels of take-up so far, there appear to be no negative effects on competition arising from the entry of this technology into the market and no immediate competition issues have been identified. However, providers of VOIP services and other packet-based information services will continue to rely on networks managed by separate network operators. Broadband network providers could be in a position to favour their own services over those of competitors, and this will need to be monitored. Particular issues for attention include: the capacity of integrated network operators to position themselves to dominate the VOIP market through their control of broadband access the capacity of carriers to constrict the quality of rival services and applications employed over their networks other potential new sources of bottleneck power that may emerge (although it is too early to know what these will be). Overall, the introduction of VOIP technology is expected to have a mild positive effect on competition as application service providers and ISPs begin offering voice services in competition with the incumbent telecommunications providers. The impact will probably be less than in countries like the United States, where VOIP strategies feature as a leading aspect of vigorous competition between established cable television companies and telecommunications carriers. Extraterritorial supply and enforcement issues International business services are well established with corporate networks (often IPbased) being accommodated within the Australian telecommunications framework with little difficulty. Services provided directly to consumers, however, could raise new issues. Internet-based services such as VOIP can be provided from an offshore location, beyond the reach of Australia s telecommunications regulation. This is particularly true for peerto-peer services but could also be true of services interacting with the public telephone network. It could add complexity, for example, to the issue of emergency call access, or it could impede the enforcement of legal interception requirements. More broadly, off-shore services could challenge the competitive neutrality of telecommunications regulation and evade Australian consumer protections. These issues are discussed further in section 4. 22

23 4. THE FUTURE POLICY AND REGULATORY APPROACH TO VOIP Transition short-term and long-term perspectives A fundamental shift is occurring as telecommunications providers begin the transition to NGNs. Over the next few years, carriers are expected to renew the switches at the core of the network, replacing the circuit switches that were designed to open and close voice circuits with new switches designed for handling data. This next generation network will enable packet-based data, including voice traffic, to be transmitted across the whole network. Another change coming with NGNs, although it might take longer, is the widespread take-up of broadband terminal equipment to connect directly into the new IPbased networks. When these two developments come together, voice traffic using end-to-end packet switching (probably IP-based) will replace analogue telephony. This is a long-term scenario. In the meantime, as discussed in section 2, several different kinds of VOIP services are entering the market, with different levels of quality and security, and with different business models and markets. These new providers are attracted by the reduced capital cost of voice service network equipment. At this stage, it is not clear how the market will respond to these various offerings, nor what the new balance will be between fixed and mobile services, or between Internet and carrier based services. Further variations, including dual mode fixed-mobile, and mobile-ip telephones will extend the range of choice available over the next two or three years. While the technology has developed rapidly in recent years, there is further scope for innovation and for advancement. Figure 3. Source: DCITA In these complex and rapidly changing circumstances, a nuanced policy and regulatory framework is needed. While it is important to take account of the changes under way, it would be unwise either to try to make assumptions about market developments, or to force them with premature regulation. As far as possible, the regulatory framework should be 23